How to shop for a loan?

Before you go out to find your dream home, you should consult with a lender to see how much of a loan you can comfortably qualify for. It is very disappointing if you find your home and come to realize you can't get it financially.

Common types of loans:

Conventional Loan

Conventional loans are the "normal" loans with certain percent down payment. Usually if the down payment is under 20%, the lender will require Private Mortgage Insurance (PMI). Conventional loans are sometimes more lenient with the appraisal and condition of the property. The best rates are usually given to conforming loans, which are conventional loans under $417,000. Above this limit you are into the Jumbo Loan range.

FHA Loan

FHA loans are insured by the Federal Housing Administration. They offer a low down payment (currently 3.5%) and are easier to qualify for than conventional loans. Property must be comply with Minimum Property Requirements, and would need to be brought up to code if it's not.

VA Loan

VA loans are guaranteed by the Veterans Administration. A veteran must have served 180 days active service. VA loans don't require any down payment, but it can not exceed the CRV (Certificate of Reasonable Value).


So when you are out shopping for your loan, what should you be comparing?

Check to see if the lender is reputable in the community. How long has the company been in business and how many loans do they close each year? Is the lender a direct lender? Many REO or bank owned properties now require pre-approval from direct lenders, not just any mortgage broker. Does the lender have access to different types of loans? Can the interest rates be locked in and for how long?

Don't pick a lender based on rates quoted over the phone. Interest rates can change multiple times a day. They also depends on your credit score and history, loan amount, and the type of properties you are purchasing.

There are a lot of nuances in loan application now, particularly if you are buying a condo unit. You need to be aware of the owner occupancy ratio, the percent of owners in arrears in HOA dues, and whether the condo complex is in litigation, just to name a few. A good article on condo loans from the Wall Street Journal can be found here.